Reserve Expenditures
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RESERVE EXPENDITURES

QUESTION: Does an expenditure from the reserve account require board approval?

ANSWER: Yes. Reserve accounts are given significant protections by the Davis-Stirling Act. Associations must set up bank accounts that are separate and distinct from their managing agent's funds and separated into operating and reserve accounts.

Spending Restrictions. Boards may not spend reserve funds for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain. (Civ. Code §5510(b).)

Borrowing From Reserves. Boards are allowed to borrow from reserves but are required to give notice of their intent to borrow by listing it as an item in the meeting agenda. The meeting notice must include the reason the reserve transfer is needed, some of the options for repayment, and whether a special assessment may be considered. If the board authorizes the transfer, it must issue a written finding recorded in the minutes explaining the reasons for the transfer, and describing when and how the money will be repaid to the reserves. (Civ. Code §5515.)

Two Signatures. Finally, the signatures of at least two board members or one officer who is not a member of the board plus a board member is required for the withdrawal of moneys from the reserve account. (Civ. Code §5510(a).)

Summary. Transferring funds out of a reserve account is significant and requires board approval.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC